Phillip Inc. produces and sells a single product. The company uses a standard cost system for control purposes and sets predetermined overhead rates based on direct labour hours. The company has set a production budget of 5,000 units and expects to incur $25,000 of variable manufacturing overhead cost. The standard cost for the product is as follows: Standard Cost Per Unit ($) Direct materials 3 metres at $4.40 per metre 13.20 Direct labour 1 hour at $12 per hour 12.00 Manufacturing overhead 140% of direct labour cost 16.80 Total $42.00 During the year, the company actually produced 6,000 units of product and incurred the following costs: Materials purchased at $4.80 per metre $115,200 Materials used in production 18,500 metre Direct labour paid at $13 per hour $75,400 Variable manufacturing overhead $29,580 Fixed manufacturing overhead $60,400 Required: a) Present the standard cost card in a clearer format, segregating between variable overhead and fixed overhead cost (b) Compute ALL the possible variances for the year based on the information given. (c) Write journal entries to record ALL variances computed in (b) above (narrationsare not required).
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Phillip Inc. produces and sells a single product. The company uses a
for control purposes and sets predetermined
The company has set a production budget of 5,000 units and expects to incur $25,000 of
variable
The standard cost for the product is as follows:
| Standard Cost Per Unit ($) | ||
| Direct materials | 3 metres at $4.40 per metre | 13.20 |
| Direct labour | 1 hour at $12 per hour | 12.00 |
| Manufacturing overhead | 140% of direct labour cost | 16.80 |
| Total | $42.00 |
During the year, the company actually produced 6,000 units of product and incurred the
following costs:
| Materials purchased at $4.80 per metre | $115,200 |
| Materials used in production | 18,500 metre |
| Direct labour paid at $13 per hour | $75,400 |
| Variable manufacturing overhead | $29,580 |
| Fixed manufacturing overhead | $60,400 |
Required:
a) Present the standard cost card in a clearer format, segregating between variable overhead and fixed overhead cost
(b) Compute ALL the possible variances for the year based on the information given.
(c) Write
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